...I came across this when putting the two monthly newsletters together on Sunday; I think it would be appropriate to share it with you here...

Peter Bernholz (Professor Economics in Basel) studied the world's 12 most important periods of hyperinflation and discovered that the tipping point occurs when deficits amounted to 40% of the expenditures.For the United States we have arrived at exactly that point. The deficit of $1.5 trillion amounts to 41.7% of the $3.6 trillion in expenses.

You see, that Peter Bernholz rounds some numbers, but for those of you keeping score at home, the real point is that the US deficits are greater than 40% of expenditures... And you know me, I truly believe in this history repeating itself.The point I'm trying to make here is that according to Mr. Bernholz, we can soon expect a bout of hyperinflation! OH BOY! Where do I sign up for that? Not only do we have a falling dollar causing us to lose purchasing power, but what purchasing power we have left is going to be eaten away with inflation! Like I said, OH BOY! Gee Willikers, that sounds like the cat's meow! NOT!So... Here we go again, with me getting on the soapbox and telling you that the only way to protect yourself from a falling dollar and hyperinflation is to diversify with non-dollar currencies and precious metals.

The hedge fund manager, who warned about Lehman Brothers' precarious finances before it collapsed, said on Monday that he's betting on rising interest rates and holding gold as a hedge for what he described as unsound U.S. policies,according to press reports.

"If monetary and fiscal policies go awry," as Mr. Einhorn apparently believes they might, investors should buy physical gold and gold stocks, he said. "Gold does well when monetary and fiscal policies are poor, and does poorly when they are sensible."

"Over the last couple of years, we have adopted a policy of private profits and socialized risks - you are transferring many private obligations onto the national ledger," the chief of $5 billion hedge fund Greenlight Capital said.

"Although our leaders ought to be making some serious choices, they appear too trapped in the short term and special interests to make them," Mr. Einhorn said.

According to a joint analysis by the Center on Budget and Policy Priorities, the Committee for Economic Development and the Concord Coalition, the projected United St
ates budget deficit between 2004 and 2013 could grow from $1.4 trillion to $5 trillion.

Last week when Federal Reserve Chairman Ben Bernanke, Mr. Geithner and White House economic adviser Larry Summers spoke in interviews and on panel discussions, Mr. Einhorn said, "My instinct was to want to short the dollar but then I looked at other major currencies - euro, yen and British pound - and they might be worse."

Mr. Einhorn added, "Picking these currencies is like choosing my favorite dental procedure. And I decided holding gold is better than holding cash, especially now that both offer no yield." [nicely put]

My reaction: Confidence in the dollar is under attack.1) Latin America is planning a US dollar replacement.

2) The US budget deficit in 2009 exceeded 40% of the federal expenditures, the historically tipping point into hyperinflation.

3) Big investors, including Mr. Einhorn, are turning to gold as a more attractive alternative to cash.